Fed Beige Book reports caution on economy, signs of easing inflation

The Federal Reserve's district banks reported increased caution on the part of economic agents when it came to the outlook for the country's economy and some signs that inflation was easing.

"Several Districts reported a cooling in labor demand, with some noting that businesses were hesitant to add to payrolls amid increased concerns of an economic downturn," the Fed said in its latest Beige Book.

The Beige Book, which was released overnight, is typically published roughly a fortnight before rate-setters meet to decide on policy.

Of the central bank's twelve districts, four reported "flat activity" and another two outright declines.

Interest rates, inflation and supply disruptions were all cited as reasons for the modest rate of economic expansion.

The book's findings were collected before 7 October.

Although some contacts said that pricing power over the previous six weeks remained "solid", others said that passing costs on to clients was increasingly difficult.

"Looking ahead, expectations were for price increases to generally moderate."

The Federal Reserve Bank of Boston and that of Philadelphia both reported increased talk of recession risks.

Wage growth was reported as having slowed in several districts although the jobs market overall continued to be described as tight and wage growth was expected to continue.

As of Thursday morning, according to the CME's Fed Watch tool, traders were discounting 94.3% odds of a 75 basis point interest rate hike by the Fed for when it next met on 2 November.

That would take the target range for the Fed funds rate to 3.75-4.0%.

The probability of a further hike in the target range to 4.5-4.75% at the 14 December meeting of the Federal Open Market Committee was put at 81.3%.